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How Asia Works: Success and Failure in the World's Most Dynamic Region

Joe Studwell

4.26 · Rating details · 2,034 ratings · 201 reviews

In the 1980s and 1990s many in the West came to believe in the myth of an East-Asian economic miracle. Japan was going to dominate, then China. Countries were called “tigers” or “mini-dragons,” and were seen as not just development prodigies, but as a unified bloc, culturally and economically similar, and inexorably on the rise.

Joe Studwell has spent two decades as a ...more

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Hardcover, 320 pages

Published June 25th 2013 by Grove Press (first published March 1st 2013)

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Aug 31, 2014 Matthew rated it it was amazing

Shelves: business-history, economics, history, china, south-east-asia

This was excellent, very well organized and concisely argued. Basic point I think is that nations need to take control of their own economic and industrial narratives. The first part was eye opening for me, focusing on agricultural policy and land reform - effectively arguing that the first stage of development should be redistribution to encourage high density labor intensive farming as a means to employ workers and increase acreage yields, which improves the current account and creates a This was excellent, very well organized and concisely argued. Basic point I think is that nations need to take control of their own economic and industrial narratives. The first part was eye opening for me, focusing on agricultural policy and land reform - effectively arguing that the first stage of development should be redistribution to encourage high density labor intensive farming as a means to employ workers and increase acreage yields, which improves the current account and creates a domestic market. Though at a later stage he does say that as incomes rise, a move to large scale commercial farming is optimal for improving productivity, otherwise you get stuck ala Japan. Second part is on industrial policy which is more typically covered, key points here are I think needing to have infant industry policies, but subjecting them to export discipline and culling the losers. What's interesting here is the comp between Japan, Korea, Taiwan and to a lesser extent China. Third part is on marshalling finance, and I think this is a fascinating point -- that if industrial policy is in the right direction, financial policy is a secondary factor for devt (case in point Korea), and vice versa (case in point Malaysia/Thailand - relatively prudent financial policy, weak industrial policy; if you have weak everything you are just screwed ala Philippines). Last chapter is on China in light of the foregoing historical analysis.

It all strikes me as valid and making a lot of sense. There is generally a strong appreciation for historical and country specific context, and a solid bibliography for further reading. It is also generally an argument for more emphasis on the historical, rather than formal/mathematical, approach in development economics. What I hoped for more of were perhaps his thoughts on the funk that the East Asian model is now in - Japan in deflation, Korea struggling to empower its SMEs and disempower the chaebols, and Taiwan hollowed out by money going to China - and China facing the limits of its own export and investment growth model. In that sense his story is backward looking - useful as a framework for thinking about how SEA, perhaps, which is relatively behind the curve, could develop, but less useful for thinking about how North Asia will look in 10-20 years. ...more

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Feb 07, 2015 Dyan Canlas rated it it was amazing

Highly stimulating. Very relevant with clear examples given and direct to the point. Influential read as I am part of an East Asian country, and seeing how we and neighboring countries operate is a bit disappointing and encouraging. There is room for improvement in the economies of South East nations, lots of it, but it will come from the people.

I barely knew economics concepts, but here I am trying to google the main points I take from the book. Very comprehensive and worthy read.

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Aug 04, 2018 Bouke rated it it was amazing

Shelves: gift, asia

Really interesting book! This might be the only book I’ve ever read on macroeconomics, but it’s very well written and reads easily.

The book investigated and expounds the successful and not so successful economies of Eastern Asia, comparing why certain ones (Taiwan, S Korea, Japan) succeeded, while others (Philippines, Indonesia, Thailand) never reached the same level of success. The author explains that a lot of the policies that made these and other industrialized countries successful are Really interesting book! This might be the only book I’ve ever read on macroeconomics, but it’s very well written and reads easily.

The book investigated and expounds the successful and not so successful economies of Eastern Asia, comparing why certain ones (Taiwan, S Korea, Japan) succeeded, while others (Philippines, Indonesia, Thailand) never reached the same level of success. The author explains that a lot of the policies that made these and other industrialized countries successful are contrary to those spouted by the world bank, IMF, and the US.
According to the author it comes down to three policies by the developing countries’ governments:

1. Agricultural development. When a country is underdeveloped and labor is cheap, it should redistribute farmland to small household farms, and make sure that this is done in a sound way such that the land can’t just be accumulated under one landlord again. The reason is that ‘gardening’-style farming as done on such farms, while labor-intensive is much more productive per hectare than large-scale mechanized farming. This will lead to a surplus in yields, which will lead to profits for the families, which they can then re-invest in their farms or use to improve their own living conditions. This policy should also be supported with subsidized fertilizer, education, etc. whatever support the government can give to improve the yield of small farmers. The problem in the Philippines is that, while they tried to do land reform, in the end the big families just regained their land through backdoor policies, and to this day are farming them like plantations, which are profitable but don’t provide the biggest amount of welfare for the nation.
2. Industrial policy. The country should nurture an infant manufacturing sector through protectionism and export discipline. The author points out that basically every industrialized country did so through protectionism, including Germany, USA, and the UK. The developing country should build up their own expertise, for example by doing technology transfers with foreign firms (while maintaining control) until they can innovate on their own. This should be stimulated by the government. An example from the book, is that during the Korean junta they rounded up all the business leaders and forced them to sign a statement that they agreed to listen to the junta, otherwise all of their possessions would be taken from them. They then coerced them into starting manufacturing businesses like cables etc. The other key factor is that the manufacturing businesses should be forced to compete on a global level through ‘export discipline’, which is policy that incentives businesses to export their products, for example by guaranteeing loans based on purchase orders from abroad (like Korea did).
3. Keep a tight leash on the financial system. The hire part is that the government should rightly control the finance system and ensure it works to their interests, instead of being captured by profiteers. An example was that in the Philippines, where the banks were privatized, the big family businesses all had their own banks which would loan money to the family business, which they would just not pay back, leading to the government picking up the cheque. In Malaysia they liberalized the financial system and IPOd companies prematurely, leading to huge stock market bubbles on unproductive companies. Only after industrialization should the banking sector be liberalized bit by bit.

The last chapter is on China, and talks about how all these things are also playing there, but on a much larger scale and with the twist that many of the large companies are state-owned.

In conclusion, very good and clear book. I learned a lot. ...more

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Sep 19, 2018 Andrew rated it really liked it · review of another edition

Pretty, pretty, pretty, pretty good

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Mar 05, 2019 Kair Käsper rated it it was amazing

Shelves: the-world-we-live-in

I wanted to give this book 4 stars, because of the author's tendency to go into too much detail (for my liking). But I can't. This book broke a lot of what turned out to be misconceptions and it marvellously explains (in a Sapiens-kind-of-way) how countries like Japan, South Korea, China and Taiwan have become economic powerhouses while Philippines, Indonesia, Malaysia are trailing far behind, despite having roughly the same starting point. It's a well-researched and brilliantly argued blueprint I wanted to give this book 4 stars, because of the author's tendency to go into too much detail (for my liking). But I can't. This book broke a lot of what turned out to be misconceptions and it marvellously explains (in a Sapiens-kind-of-way) how countries like Japan, South Korea, China and Taiwan have become economic powerhouses while Philippines, Indonesia, Malaysia are trailing far behind, despite having roughly the same starting point. It's a well-researched and brilliantly argued blueprint for transforming a low-income country into a top performer, based on history and facts, not blackboard theories.

There were too many highlights to list them all, but here's a taste:
- turns out that I'm not so liberal as I thought. For a country to develop economically it needs to protect itself from outside exploitative forces. Trade barriers, state controlled banks, heavy (export) subsidies etc are not only beneficial, but necessary.
- wealth redistribution through land reform is extremely difficult to execute, but absolutely crucial to build up the country (reasons thoroughly explained in the book)
- export is everything, the winning formula is not to pick winners, but to kill the losers
- multinational corporations in low-income countries keep them low income as the arrangement benefits the countries leaders (and maybe even the country itself in the short term), but keeps local companies from learning and therefore competing in the long term
- China, South Korea, Japan have been good at limiting Western access and incentivising their star entrepreneurs to learn and incrementally increase exports. The results are easy to see when looking at car manufacturers and consumer electronics. Even so, most of the game takes place away from public eye, with lead roles played by investment, construction and industrial companies.

The only critique I have for the book is that it pretty much stops with industrialization and doesn't really tackle the already dominant tech scene. It almost feels like the last 1/3 of the book is missing. Still, this is probably the most fascinating book on economics I've read. ...more

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Jul 31, 2013 Aaron Arnold rated it it was amazing

Shelves: history, read-in-2014, economics

The title makes a bold claim, but overall Studwell does an excellent job of condensing, comparing, and commenting on the development paths of almost all of the major northeast and southeast Asian economies from an elevated yet rigorous level. While space prevents him from discussing some of the most unique countries - I'm thinking mostly of North Korea and Vietnam as well as Singapore and Hong Kong, though surely Laos, Cambodia, Myanmar, and Papua New Guinea have their own interesting stories - The title makes a bold claim, but overall Studwell does an excellent job of condensing, comparing, and commenting on the development paths of almost all of the major northeast and southeast Asian economies from an elevated yet rigorous level. While space prevents him from discussing some of the most unique countries - I'm thinking mostly of North Korea and Vietnam as well as Singapore and Hong Kong, though surely Laos, Cambodia, Myanmar, and Papua New Guinea have their own interesting stories - the room freed up thereby lets him pack in a remarkable amount of high-level analysis in about the remaining countries: Japan, South Korea, and Taiwan; Thailand, Malaysia, Indonesia, and the Philippines; and of course China, which appropriately gets the entire fourth section of the book all to itself. The remainder of the book is split amongst the other seven nations (or six plus whatever you want to call Taiwan), divided into three different stages of development: agriculture, manufacturing, and finance.

Successful development strategies begin with agriculture, the sector that has contained the majority of the workforce in every undeveloped country in history. Farming's relationship to political structure is complex, but most underdeveloped societies seem to be stuck a sort of feudal pattern, with a few large landowners controlling vastly disproportionate shares of each country's land and hence political system (note that this harmful pattern may have been encouraged in former first-world colonies). Since the most efficient way to get food is to have many small farmers working many small plots of land (it will come as no surprise to sustainable-food advocates that this "garden-style" method is typically more effective than US-style agribusiness), the first task of every forward-thinking leader is to break up large estates and redistribute the land to the people. Some countries like Japan managed this well, raising their food production as well as increasing economic mobility, while oligarchies in others like the Philippines made sure that redistribution never disrupted their control of local markets. While land redistribution and the instigation of widespread household farming does not by itself guarantee success, failure to bring the masses into the formal economy means both that fewer people make the jump from "starving miserably" to "just getting by" and that power remains concentrated among very few hands.

Once land redistribution has succeeded, industrialization can proceed. In Europe, the Industrial Revolution began first with the textile industry, which is a path many countries still take (e.g. Malaysia's garment industry). Light industry is well-suited for developing countries, since there will frequently be many small factories requiring large amounts of not-especially-skilled labor. Additionally, the increased number of household farmers looking to sell crops will need things like pickup trucks, motorcycles, or motorized bicycles, spurring the growth of companies like Honda who got their start by building just such vehicles. There's a persistent debate among economists: should developing countries raise tariffs and provide subsidies to infant industries, risking corruption and inefficiencies; or should they pursue neoclassical free trade policies, following the theoretically maximally efficient orthodox neoclassical model at the risk of having infant industries crushed by superior foreign competition? Studwell convincingly demonstrates that the former is the correct path, citing the arguments of Friedrich List and Alexander Hamilton among others. The common metaphor is that tariffs and subsidies are like a ladder used to climb up, to be kicked away when done, but the examples of rich countries that used mercantilist policies to get rich and then later mostly or partially deregulated (i.e., all of them) shows that early state support for industry is vital. South Korea's support for Hyundai, Daewoo, and others had many positive spillover effects for related heavy industries like shipbuilding.

However, it's important not to gloss over the failures of heavy state involvement in industry. Even in the US, development projects like railroad construction after the Civil War were notoriously corrupt, and all of the same risks of cronyism, rent-seeking, and regulatory capture are present in Asia. The most important thing for countries to do, as shown by the examples of Japan and South Korea, are to focus on exporting manufactured goods which can be traded as opposed to cultivating service industries which can't, and then promote export discipline by not allowing domestic firms to get lazy. Japanese cars were laughed at when they first hit American markets, but they quickly improved and seriously challenged the Big Three because Japan would not allow their manufacturers to rest on their laurels; Malaysia was not nearly so stringent with its auto industry, and as a consequence Proton never achieved the same reputation for quality. A common pitfall for countries is to simply ask foreign companies to set up shop with some branch plants in their country and raise their living standards that way. Trying to skip ahead in that method doesn't work for a few reasons: first, incentives or subsidies to the foreign companies are often expensive, representing an export of capital desperately needed at home; second, much less knowledge is transmitted to the local economy than if native entrepreneurs had been given the support to figure things out for themselves and create their own supply chains; third, fewer jobs are created, with those that do being generally of lower quality; fourth, interactions with the foreign companies are rife with potential for corruption.

This has implications for the third stage of development, the creation of a domestic finance industry. Studwell goes into a great amount of detail on how various countries' financial sectors either contributed to their paths of development or inhibited them, and the Asian financial crisis of course figures prominently as a warning sign to countries that were on the wrong development path. Another reason to prefer investment in manufacturing over services is that once an independent financial sector gets going, money tends to flow to lucrative but non-productive sectors like high-end real estate speculation rather than, say, new industrial infrastructure. This is especially true in the case of countries whose elites survived the process of land redistribution and the creation of a manufacturing sector, and who now maintain critical positions in agriculture, industry, and finance (thus leading to sweetheart loans, kickbacks, and all manner of related corruption). Financial crises are devastating no matter how developed your country is, but one with plenty of domestic firms is able to get back on its feet much more quickly than one with a bunch of empty factories that used to be owned by foreign companies. Countries that develop successfully engage in heavy financial repression and capital controls, which increases the savings rate and allows for the currency exchange rate to be used to favor domestic producers. This has the cost of artificially stunting consumption, as well as perennial demands from the IMF for financial deregulation and floating exchange rates, but as long as a country's leadership is not too dominated by a few families, as it was in places like the Philippines, it should be able to use the tools of modern international finance to finally compete on a level playing field with rich Western countries.

All this brings us to China, whose development path has similarities with both the richer Northeastern Asian countries and the poorer Southeastern ones, and is hence unique enough to deserve the sole focus of the final section even aside from its singularly vast scale. It's come a long way from disasters like the Great Leap Forward; China's modern rush towards development is an acknowledgment of the failures of state-lead growth, and yet even today China has immense state companies that play vital roles in its economy, alongside the countless numbers of foreign-owned companies that use its cheap labor to assemble much of the world's high technology. There's a business concept (first introduced by the CEO of Taiwan-based Acer, interestingly) called the "smile curve" - profits are highest in the early product design/R&D stage, low in the manufacturing stage, and high again in the sales stage. China's leadership is very aware of what needs to be done to get domestic businesses to climb higher and higher up the value chain and cease relying so much on its current comparative advantage in cheap labor, but frequently that's easier said than done. Studwell remarks that often Chinese businesses find it easier to compete in the business-to-business heavy-industry sectors like energy, shipbuilding, or rail compared to more consumer-focused sectors like high tech, but since China is for the most part adhering to the successful path of heavy financial repression and capital controls (though anyone who's followed the Bo Xilai story knows the vast scale of Chinese corruption), it seems that China will most likely emerge in a few decades at or near the technological frontier of the rich Western countries.

Any book that tackles such a broad subject invites criticism, but for the most part the book seems to mesh well with other books I've read. James Fallows' China Airborne had a lot to say about the development of the Chinese aviation market, which bears directly on many points raised here about the manufacturing sector and its role as a driver of acceptance of international business standards. The sections on the Asian financial crisis also seem to mesh with what I've read from other sources like Paul Krugman's The Return of Depression Economics (an earlier work of his, "The Myth of Asia's Miracle", also offers an interesting alternative perspective on Asian development). Furthermore, even though his histories of each individual country can't help but oversimplify, his general insights on pitfalls of development seem to cover the specific agonies of each individual country that for one reason or another has gotten into trouble. Overall, Studwell has done an excellent job of explaining why leaders like Park Chung-Hee, Deng Xioaping, and Meiji took their countries in such different paths than Mao Zedong, Mahathir Mohamad, and Sukarno in a brisk, well-argued volume. ...more

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Dec 26, 2018 Oliver Kim rated it it was amazing

The rise of the east Asian economies, and the lifting of their six hundred million out of grinding poverty, is the central fact of the past hundred years. In scope, nothing else comes close.

In “How Asia Works”, Joe Studwell tells us how this seeming miracle was made possible: a three-step prescription of land reform, export-focused industrial policy, and financial repression. Japan, South Korea, Taiwan, and (most recently) mainland China have grown rich by following this formula; by ignoring it, The rise of the east Asian economies, and the lifting of their six hundred million out of grinding poverty, is the central fact of the past hundred years. In scope, nothing else comes close.

In “How Asia Works”, Joe Studwell tells us how this seeming miracle was made possible: a three-step prescription of land reform, export-focused industrial policy, and financial repression. Japan, South Korea, Taiwan, and (most recently) mainland China have grown rich by following this formula; by ignoring it, Malaysia, Thailand, Indonesia, and the Philippines have fallen behind. Earlier reviews, largely glowing, have already scrutinized the Studwell Plan’s three parts, so I won’t go into them here. But, as a grad student in an economics PhD program, I’d like to recommend this book on two further counts.

The first is stylistic. Studwell doesn’t equivocate. “No ruling elite in Asia”, he declares, “has come up with as many ways to avoid implementing genuine land reform as the Filipino one.” In Studwell’s idiom, offshore financial centers like Hong Kong and Singapore are “parasitic”; Malaysia, which halfheartedly tried to industrialize, is likened to a student “who went to school and college for twenty years but failed to pay sufficient attention”. Coming from academia, this kind of bluntness is refreshing—none of this “on the other hand, marginally significant coefficients are estimated in the third and fifth specifications” gobbledygook. Of course on many of these points Studwell is wrong. (He dismisses the success of Hong Kong and Singapore too easily, for one.) But being boldly wrong makes it easier to delineate where one disagrees.

The second point is more subtle. Most reviews note how, in his three-point plan of state-directed development, Studwell rebukes the neoclassical orthodoxy taught to almost every young macroeconomist. Special scorn is reserved for US-trained PhDs, among them the IMF and Indonesia’s “Berkeley Mafia”, whose advice to countries rich or poor, boom or bust, was to liberalize, liberalize, liberalize.

History has so thoroughly discredited this worldview that most serious experts will no longer defend it—debunking it is old ground. I found my thoughts stirred more by a second, methodological rebuke: namely, Studwell shows a deep concern for the sort of institutional details that economists are trained to leave out.

The standard neoclassical story taught in graduate macro (if taught at all) is that the east Asian economies grew out of poverty by rapidly accumulating capital, moving labor from farms to factories, and funding all of this through unusually high rates of saving. In its broadest strokes this resembles Studwell’s thesis. But for many economists, this will be the extent of their training in the subject. I distinctly remember a conversation in the graduate student lounge where, with the smug assurance of the newly converted, we discussed how neat it was that so much could be summarized with such a simple model.

Studwell dares us to dig deeper. For instance, what were the conditions in northeast Asia that freed millions of farmers to move to the factories? In neoclassical growth theory this reduces to an increase in L (labor) or H (human capital)—understanding the incentives of smallholder farmers, or the minutiae of how gardeners maximize yields per acre, was below the pay-grade of serious macroeconomists. But Studwell makes a strong case that the institutional detail of how land was parceled out (and who was doing the parceling) is what separates a country like Japan from the Philippines.

Or consider the case of manufacturing. With similar rates of investment, starting from roughly the same level of wealth, Korea has produced the Hyundai Elantra; Malaysia, the Proton Waja. The closed-economy, perfect-competition growth models featured in most textbooks have little to say on how this is possible. Studwell’s suggestion of export discipline reinforced by a government cudgel, while incomplete, is at least partway to a full answer. In both cases, historical experience cries out against against a reductive theory, shorn of political context.

Of course, (returning to the graduate student lounge) as young progressive types we economists-in-training will profess a belief in the importance of political institutions, the ubiquity of market failure, and the new mode of careful causal identification. But in our training we are given only the neoclassical growth model—most programs no longer even bother to teach economic history. Many of us will go on to positions in government or the commentariat, and will inevitably be asked how to “do a China or Japan”. I worry that, without a decent alternative, we will be tempted to fill in the gap with an easy generalization, like a writer resorting to a cliche.

In that vein, I cannot recommend this book enough to my friends pursuing economics PhDs. Graduate training, with its growth models and representative agents, provides a sturdy analytical framework for analyzing the problems of development. But, left bare, a framework is just a skeleton. What Studwell’s book reminds us, clearly and forcefully, is that our models are at best a rough approximation of a messy reality, and that there is institutional flesh to study between the equations. ...more

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Jan 29, 2019 Alex O'Connor rated it really liked it · review of another edition

A very informative and readable account of how Asia got to be where it is today through the lens of agriculture, manufacturing, and finance with particular emphasis on China. I learned a great deal from this book and recommend it highly.

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Jun 25, 2018 Omar rated it it was amazing

Shelves: really-should-read, development

the least libertarian book

it's an _actual plan_ to go, uh, "from third world to first", and it makes sense, and it seems to work! it's politically hard, but it's not magic!

pretty much summarizes to: land reform & ｅｘｐｏｒｔｄｉｓｃｉｐｌｉｎｅ

this review elegantly reframes the book's policies: they are all about _directing toward positive externalities_ for development:
- land reform => higher productivity, larger tax & consumer base
- export discipline => making better and more advanced ...more

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Sep 09, 2018 Laurent Franckx rated it liked it

I have read this book following the positive Twitter review by Noah Smith https://twitter.com/noahpinion/status...

I am now trying to find some points to add to what Noah Smith wrote on the subject but it's not easy to think of anything.

I should admit that while, reading the book, I often had the economists' reflex of asking myself: "well, right, this may be true in practice, but does it also in theory"? It's of course easy to make fun of this attitude, but it's actually a valid question: it's I have read this book following the positive Twitter review by Noah Smith https://twitter.com/noahpinion/status...

I am now trying to find some points to add to what Noah Smith wrote on the subject but it's not easy to think of anything.

I should admit that while, reading the book, I often had the economists' reflex of asking myself: "well, right, this may be true in practice, but does it also in theory"? It's of course easy to make fun of this attitude, but it's actually a valid question: it's not enough to describe things that worked in a very specific context, you also need to understand whether the findings can be generalised.

For instance, I think that the theoretical arguments in favour of the "infant industry" argument has more credit amongst economists than most people realise. Anyone who can 'read' an economic model knows that the 'comparative advantage' argument in favour of free trade is based on a static analysis and that it can be optimal for a country to sacrifice short term gains of free trade to obtain larger gains in the future. The key objection against the "infant industry" argument is that, given how it has been applied in practice, it has mainly created rents for domestic industries that are protected against international competition, and that these favours tend to be perpetuated at the expense of domestic consumers.

The relevant question is thus: what works and what doesn't? And why do some policies work in some countries and not in others? It is more or less generally accepted now that "import substitution" is generally a very bad idea as a road to economic development. The contribution of Joe Studwell is that he argues in favour of a very specific type of "infant industry" policies, that combines large scale public support for export oriented industries with a consistent "culling" of any company who was not up to the job. But this leaves open the question why this type of policies was possible in Japan, South Korea and Taiwan, and not in Thailand, Malaysia, Indonesia or the Philippines. What made these countries 'different'? I still don't know. If the conclusion is that it's due uniquely to the characters of individual policy makers, then of course we cannot be very hopeful about any generalisable policy recommendations.

This being said, one of the things I really liked about the book is the complete absence of any doctrinaire thinking. Studwell argues forcefully in favour of land reform, but at least partly because it was necessary to stop spreading communism. He is opposed to premature deregulation of the financial sector, but admits that the IMF's insistence on the deregulation of the financial sector in South Korea during the 1997 may he have come in timely.

Studwell's book defies any ideological classification, and that makes it really great and challenging. You don't need to agree with everything to admit that we need more thinking like this. ...more

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Oct 31, 2019 Oren rated it really liked it

tl;dr: long, highly academic, disorganized, incredibly well-researched and interesting. it fundamentally changed my opinions about economics.

deceptively short at 225 pages, this book is a highly academic dissection of the history of asian economics: the successful and unsuccessful. studwell discusses the historical backdrop of post ww2 asia and discussed how different countries approached their economies for the better/worse. his thesis is that government involvement is critical for a 3 step ...more

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Jul 20, 2017 Ben Khoo rated it really liked it

Recipe for development success:

1. Land reform - Split land evenly. Don't let the cronies take control!
2. Manufacturing - Focus on exports, and being competitive overseas. Don't let the cronies take control!
3. Finance - A tool to accelerate industrialization, never a end in itself. Don't let the cronies take control!

Mix thoroughly. Let sit for 25 years.
Voila!

----------------
While the title is how "Asia" works (actually it should be "How Asia Worked"), the book is really about Studwell's recipe of ...more

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Oct 11, 2017 Venky rated it it was amazing

Shelves: economics

"How Asia Works..." ("The book") comes highly recommended, garnering rave reviews from the likes of Bill Gates etc. The book more than merely lives up to the hype generated. Joe Studwell is more of a surgeon than an economist/journalist as he diagnoses the stumbling blocks, flexes out stimulants and prescribes suggestions that constitute the preserve of a select breed of North and South East Asian nations. Although not a policy prescription in the strictest and narrowest interpretations of the "How Asia Works..." ("The book") comes highly recommended, garnering rave reviews from the likes of Bill Gates etc. The book more than merely lives up to the hype generated. Joe Studwell is more of a surgeon than an economist/journalist as he diagnoses the stumbling blocks, flexes out stimulants and prescribes suggestions that constitute the preserve of a select breed of North and South East Asian nations. Although not a policy prescription in the strictest and narrowest interpretations of the term, the book is certainly an eye opener for policy mavens, 'the know-it-all' economist and the eager entrepreneur trying to embellish the prospects of a developing economy.

The title of Studwell’s book is however a compelling misnomer. The most appropriate and relevant substitute could have been “How North East Asia Works” or even, “How South East Asia refrains from working”, for the book is a revealing and powerful insight into the play of contradictions and a dichotomy of contrasts. As powerfully demonstrated by Studwell, since procuring their independence, the North East Asian states of China, Korea, Japan and Taiwan have transformed into global economic heavyweights, their South East Asian counterparts such as Thailand, Malaysia, Indonesia and the Philippines have found themselves trapped in a rut of misguided economic policies, myopic developmental visions and misplaced policy prescriptions. While the North East Asian countries scale one improbable developmental height after another, the South East Asian nations always seem to be teetering on the brink of an economic catastrophe perpetually lurking around an unseen corner.

For any country in its development stage (based on the empirical evidence that is the state of the East Asian economies identified in the book), Studwell emphasizes the need for three basic, quintessential and deliberate policies. These are:

• Household farming and land reforms such as targeted redistribution;
• Export oriented manufacturing with embedded strict disciplinary targets; and
• Closely controlled finance that supports both the agriculture and manufacturing sectors

Studwell argues that booms in output occurred under conditions where farming took on the visage of “large scale gardening” instead of enormous collectives which struggle to lend sustenance and yield. A classic case in point being Mao’s “Great Leap” and the disastrous famine which decimated millions of starving farmers in its devious wake. Hence according to Studwell, what occurred in China, Japan, Korea and Taiwan and did not materialize in Thailand, Malaysia, Indonesia and the Philippines was a “good land policy, centred on egalitarian household farming that set up the world’s most impressive post war development stories”
The second peculiar and divergent policy advocated by Studwell is one which is a nightmare for free market evangelists and neo-liberal economists. Instead of suggesting a full-fledged and massive financial and industrial deregulation, Studwell painstakingly demonstrates that an initially protectionist policy that grants subsidies to manufacturers, makes available finance at low or even negative interest rates, but (and this is a capital BUT) indispensable and incontrovertible export targets would lead to a rise in the manufacturing sector as was the stellar case with South Korea and the former General Park Chung Hee. Creating a regime of cheap loans, tax and tariff exemptions, and liberal subsidies, Park even encouraged the formation of cartels but with a strict and uncompromising mandate to achieve targeted exports. Inefficient chaebols were either culled or merged into more profitable ones or even bankrupted. In stark contrast, Malaysia after obtaining its liberation from colonial rule employed state entities to buy out various mining and plantation interests, but made no effort to shift to an export manufacturing strategy for domestic firms. Banking on equity Joint Ventures and foreign collaborations, whether in attempting to manufacture Malaysia’s first indigenous car “Proton” or trying to be an ambitious integrated steel manufacturer of repute, Malaysia succumbed to the lure of premature deregulation thereby attracting foreign investment but failing to achieve technological capability. The contrasting policies adopted by the two nations is chillingly captured by Studwell in the following paragraph:

“In Korea POSCO started production in 1973 with a 1 million tonne a year operation at Pohang, ramping up to 9 million tonnes of world class output by 1983, and involving an investment of US$20 billion at today’s prices. In Malaysia, Perwaja started out with 1.5 million tonnes of output and got stuck, both in volume and quality terms. With no export discipline, a succession of carpet-baggers filled their boots as the taxpayer shelled out the equivalent of US$ 6 - 8 billion in today’s money for the country to learn next to nothing”. If this isn’t Dickensian, then there are not many instances that actually could be!

The final pathway to joining the big league of the rich man’s club lies in financial support. Studwell deems it appropriate to “keep the financial system on a short leash for a considerable period of time and make it serve developmental purposes” rather than resorting to a premature deregulation which seeks out the immediately profitable avenues of investment. The Asian Financial Crisis of 1997 that lopped off the market capitalizations of companies, not to mention decapitating financial institutions in Indonesia, Thailand and Malaysia are desultory and dangerous testimonies to unchecked liberalization and deregulation. In contrast China follows a clearly delineated structure of finance whereby lending and borrowing parameters are rigidly fixed and not allowed to cross boundaries of indiscretion.

Concluding this fantastic book, Joe Studwell poignantly states "However I repeat what others concluded after the Second World War: that to turn away from such policies indicates that the world is acceptable to us as it is. Take a look at South Asia, the Middle East and Africa, and ask yourself if it is"

It definitely isn't! ...more

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Oct 29, 2019 Dhruv Goel rated it really liked it · review of another edition

The book compares the development policies of the 2oth century of two regions - North Asia (Japan, South Korea, and Taiwan) and South-East Asia (Philippines, Malaysia, Thailand, Indonesia). The focus is on how the former achieved rich country status and how the latter still lag behind even a mediumly rich country. The author has identified a set of three policies, which are extremely important at the start but become regressive later in the developmental path.

The economics and politics of the ...more

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Jul 29, 2018 Joseph Luk rated it it was amazing

Was skeptical at first and thought this book is going to be all about gossips like it was in the Asian Godfathers. I was pleasantly surprised how well Joe was able to articulate such a broad topic and fit that into one book. Obviously, one can go much deeper into each country, etc. but given he had to fit everything in a few hundred pages, I neither find the book too short or too long. Having spent most of my life in Hong Kong and having visited many countries in Asia, the book gave me a new ...more

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Jul 02, 2018 Jingwei Shi rated it really liked it

Shelves: china

This book offers a deep and contrarian analysis of the economic development in Asia that changed the way I viewed countries' economic development. Although this book might not be completely correct, it does provoke deep reflection and question my beliefs. The only drawback is that the book is quite redundant and could better organized.

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Jul 06, 2019 Alex Anderson marked it as to-read

Hoopla

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Nov 11, 2019 Jack Kinsella rated it it was amazing

Radically changed my views on the assumed general value of free trade.

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Oct 24, 2018 Anthony Nelson rated it really liked it

Very valuable, against the conventional western wisdom, take on development in Asia. A little outdated but lots of good information.

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Aug 16, 2017 Jake rated it really liked it

Compelling argument for the efficacy of a three-pronged approach to development. Book uses case studies of success stories in north-east Asia, contrasted with not-so-successful applications in south-east Asia, to make its point. These interwoven stories were, at times, difficult to follow - but I could have put more effort into following along.

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Jan 05, 2015 Kaushik rated it really liked it

Studwell's book is a coherent, well-reasoned primer on the causes of economic growth and lack thereof in east Asia. Through careful historical analysis, the author has clearly disproved the myths propagated by experts on both sides of the left-right divide regarding the drivers of economic success. The author has clearly segregated the successes (S. Korea, Japan and Taiwan) from the middling performers (Malaysia, Thailand) and the complete failures (Indonesia and Philippines) - this distinction Studwell's book is a coherent, well-reasoned primer on the causes of economic growth and lack thereof in east Asia. Through careful historical analysis, the author has clearly disproved the myths propagated by experts on both sides of the left-right divide regarding the drivers of economic success. The author has clearly segregated the successes (S. Korea, Japan and Taiwan) from the middling performers (Malaysia, Thailand) and the complete failures (Indonesia and Philippines) - this distinction is backed by the speed with which each of these nations were able to bounce back from the Asian crisis and the drivers of the same (genuine industrial competitiveness in north-east Asia against resource wealth in Malaysia).

Studwell outlines a 3 point formula that has been applied in varying degrees across the world. Basic land reform ensures maximization of yields per area, reduced food import bills (and, in some cases, provided vital forex earnings) and created surpluses to drive broad based consumption and investment. Following this, the most successful nations nurtured and supported enterprises to acquire technical competencies while pushing exports - this ensured that local firms had time to learn but also forced them to world-class in terms of quality of output. All of this was backed by a supportive financial system that lent to projects with relatively long gestation lags while also playing a role in culling the losers. The vital steps of forcing export performance and culling losers were missed in places like India, thereby ensuring several cases (in public and private sectors) of pathetic performance and seeking refuge in rents.

While some of the measures undertaken by the likes of South Korea (such as massive financial repression and forcing export led growth) might not be entirely applicable in today's scenario, the basic lessons remain unchanged. It is the absence of thorough historical analysis and excessive faith in textbook models that led to incorrect prescriptions and needless misery in parts of Asia, Latin America and Africa. A doctrinaire free market approach has not worked anywhere in the world - support from the state has been present in varying degrees in the UK, US, Germany and Japan. The key is to ensure that the support is used to acquire world class competencies and also gradually allow full competition.

Coming to the gaps in the book, Studwell has been a bit dismissive of the role played by basic manufacturing setups (assembly shops for exports) in China, Korea, etc. While these do not provide significant learning and are based on cost arbitrage, they do generate surpluses and forex reserves to finance long term investments and technology acquisition and generate much needed employment. Also, the spread of basic education (not mentioned by the author) created a workforce that could be easily skilled and put to work in factories. Finally, the abuses in the state directed development process in S. Korea (such as related party lending) have received only a cursory mention - an analysis of this and possible safeguards would have been useful.

The best part of the book is that it makes no bones about the wrinkles in the growth story of Asia - the need to allow some supernormal profits, the role of an empowered, technocratic bureaucracy and using some rents to align private sector behaviour to developmental needs. This is a must read for anyone interested in understanding the realities of the development process.

PS: For IIMA alums, this is a follow on from Prof Morris' initial lectures on economic policy. ...more

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Apr 13, 2019 Miebara Jato rated it really liked it

The Asian countries took the world by surprise. Their miraculous rise from third world to first world economies is an inspiration. But less known is the kind of reforms and policies these nations implemented, most of which were in many ways at variance with traditional economic ideas.

In this excellent book, Studwell highlighted concisely and persuasively that what works for development (going from poor to rich) is NOT the same as what works for rich countries. He was harshly critical of the IMF The Asian countries took the world by surprise. Their miraculous rise from third world to first world economies is an inspiration. But less known is the kind of reforms and policies these nations implemented, most of which were in many ways at variance with traditional economic ideas.

In this excellent book, Studwell highlighted concisely and persuasively that what works for development (going from poor to rich) is NOT the same as what works for rich countries. He was harshly critical of the IMF and the World Bank, essentially saying market fundamental policies of these institutions are keeping countries poor.

Studwell used the successful Asian countries to depict that there are three stages for development.

The first stage is agricultural reforms. Studwell argues for a redistribution of land to encourage high-density labour intensive farming as a means to employ workers and increase acreage yields, which improves the current account and creates a domestic market. Though he warned this shouldn’t be done in perpetuity, because as incomes rise, a move to large scale commercial farming is optimal for improving productivity. But the point is, poor countries can maximize yield per acre rather than return on investment, by having poor farmers do labour-intensive gardening on small farms. This can be done along with other government supports like extension services, marketing, and infrastructure.

The second part -- and the centerpiece of the book -- is about manufacturing and exports. Studwell thinks developing countries need to force their companies to export, in order to make them more productive. In other words, having an infant industry policy, but subjecting them to what he calls “export discipline” and “culling” the losers. Export discipline basically means: (1) incentivise or even forcing companies to export; and (2) Global markets providing the "discipline" that forces these companies to raise productivity and find market niches. By Culling companies that fail in export markets either by the market (through bankruptcy) or by the government (by forced mergers).

Studwell is simply arguing that development policy should be about the government encouraging competition, rather than suppressing it. A free-market story, but not the kind that picks winners.

The third part is on financial policy. According to Studwell (and this is interesting!), so long as a country has its industrial policy right, financial policy is a secondary factor for development. To Studwell, any financial system is fine as long as it supports "export discipline". Even financial crises, he says, aren't that bad, as long as you have rapid technological progress.

I recommend this book to anyone who's interested in economics and development. The book is written in a plain language. There are not even graphs or charts ...more

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Jul 09, 2018 GLinh Tran rated it it was amazing

This is my favorite book and I would highly recommend anyone who are interested in Development/Economics/Public Policy to read this book. This book explained the successful platform of some Asian countries and explained why some failed. I totally agreed with Studwell about his point of the government decided whether the country would develop or not. I also learnt from the author why and how not all the advice from IMF/World Bank worked in Asia in general. This book absolutely provided me ...more

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Nov 10, 2014 Nazri Awang rated it really liked it

A very interesting book on how North Asia and South East Asia diverged since the past 50 years or so. In essence, there are three conditions for development success. 1. Household farming. 2. Export oriented manufacturing. 3. Closely controlled finance that supports these two sectors.

Surprisingly education, robust legal system and well-developed financial system are not pre-requisites to development success at the early stage. The author cites Philippines which had a good education system, ...more

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Nov 18, 2018 Chad Kohalyk rated it it was amazing · review of another edition

Shelves: audio, history-politics

Engaging writing with a novel argument.

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Nov 02, 2015 Choonghwan rated it liked it · review of another edition

"The End of History" once set the sentiment of the last century. Every countries and institutes are either westernized or on the way to being so because there are no alternative route.

The author debunks this over-stretched theory with empirical studies of north-east Asian countries - Japan, Korea, Taiwan and finally China.

He delivers two points clearly. Developed countries once adopted very protected and heavy-handed economic policies in its industrial infancy. They now love to prescribe ...more

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Dec 11, 2014 Jose Papo rated it it was amazing

This book is an amazing study about the phenomena of how some Asian countries were able to grow so much and so fast. According to the book there are three main levers: The first is to maximize output from agriculture. The second is to direct investment and entrepreneurs towards manufacturing exports, because machines can easily be purchased on the world market. The third is to focus bank and finance capital on the fastest possible technology learning and high long-term profits and not on ...more

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Jan 16, 2015 Jacob Hedlund rated it liked it

Have you ever wondered how China came out of the blue and became a huge player in the world economy? Studwell attempts to explain this and also discusses what he believes to be the three stages of development in countries and how governmental policies have the biggest impact on how quickly a country develops. He discusses many Asian countries, though, not only China.

A lot of it is tough to get through, there is a lot of statistics and so many different players in the game that it is sometimes ...more

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Jul 09, 2017 Kristjan Velbri rated it it was amazing

If you ever felt like reading about the growth models used by 19th century Germany, 20th century Japan, Korea and Taiwan + 21st century China, this is the definitive book for you! Free market capitalism is the end point for most, but what were the models these countries used to get there? You'll find out how the state first improved agricultural yields, then used the surplus to build an industrial base and then incentivized companies to export. The writing style keeps the reader glued.

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Jun 25, 2013 Michael Wallace rated it really liked it

I bought this book on the recommendation of the Marginal Revolution blog. I enjoyed it a good deal and the theme of agricultural reform as a precursor to the industrial revolution in NE Asia was new to me. I was more aware of the export and banking components of their development.

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About Joe Studwell

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Asian Godfathers: Money and Power in Hong Kong and South East Asia

The China Dream: The Elusive Quest for the Last Great Untapped Market on Earth

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“The easiest way to run developmentally efficient finance continues to be through a banking system, because it is banks that can most easily be pointed by governments at the projects necessary to agricultural and industrial development. Most obviously, banks respond to central bank guidance. They can be controlled via rediscounting loans for exports and for industrial upgrading, with the system policed through requirements for export letters of credit from the ultimate borrowers. The simplicity and bluntness of this mechanism makes it highly effective. Bond markets, and particularly stock markets, are harder for policymakers to control. The main reason is that it is difficult to oversee the way in which funds from bond and stock issues are used. It is, tellingly, the capacity of bank-based systems for enforcing development policies that makes entrepreneurs in developing countries lobby so hard for bond, and especially stock, markets to be expanded. These markets are their means to escape government control. It is the job of governments to resist entrepreneurs’ lobbying until basic developmental objectives have been achieved. Equally, independent central banks are not appropriate to developing countries until considerable economic progress has been made.” — 1 likes

“What created the Canons, the Samsungs, the Acers and so on in Japan, Korea and Taiwan was the marriage of infant industry protection and market forces, involving (initially) subsidised exports and competition between manufacturers that vied for state support.” — 1 likes

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